Making Adults Out of Airlines

March 1, 1977

THE GENERAL Accounting Office reported recently that if the airline industry had been less regulated between 1969 and 1974 passengers would have saved about $1.5 billion each year in fares. That is a very large number - more than 25 per cent of the average fare - and it undoubtedly will be disputed. But it is a number that Congress will do well to keep in mind as it considers the proposals for deregulation already made by the Civil Aeronautics Board and those which President Carter says he will make soon. For if the GAO is only half right, the costs of the current regulatory system are simply too high.

But there is a second half to the GAO report that ought not to be overlooked, either by Congress or by the rest of us. Savings of that size - if they come about with less regulation - are not going to come out of airline profits, which are insufficent now. They are going to come at the cost of more crowded airplanes, fewer flights, less leg room, a lower level of on-board service, and, quite possibly, the elimination of air service to some communities and the disappearance of some airlines.

These are not costs to be dismissed lightly, particularly the loss of service and the possibility of airline bankruptcies. When deregulation occurs, it may well be necessary for government to increase its subsidies to airlines which serve non-profitable routes. But given the amount of money now being poured into subsidies for other kinds of transportation, that does not seem to us to be a major concern in light of the potential savings to air travellers. Bankruptcies of airline companies, of course, would disrupt the money markets and hurt those who own their stocks or bonds. But mergers are an alternative and a carefully managed transition from the present tight regulation towards a much lower level of regulation might avoid most of the problems.

We have been persuaded for some time that the sacrifice of some comfort and convenience in exchange for lower air fares, even if accompanied by a period of some dislocation and economic disorder, is one the nation ought to make. The system of tight airline regulation - fares, routes, and practically everything else - was created in the 1930s to aid an infant industry. It did its job well. But the airline business is no longer an infant. Indeed, it is the major common carrier of inter-city passengers. The new GAO report bolsters the case that the protections given the infant are no longer needed. It is time for the airlines to join the adult world competition.